Document Type

Article

Publication Date

2-28-2006

Keywords

Auditors; Public Auditing in Canada; CPAB; PCAOB; accuracy of financial statements

Abstract

Auditors play an important role as gatekeepers to public capital markets. By attesting to the accuracy of a company’s financial statements, the auditor lends its credibility to that company and its financial health. Both market and legal mechanisms play a role in ensuring that auditors perform high quality audits. Reputation is critical in the market for auditors. In addition, potential legal liability to issuers and investors arising from contract, tort, and statutory securities laws creates incentives for auditors to conduct high quality audits. Potential discipline by professional self-regulatory bodies also plays a part. Striking the appropriate balance among market-based, legal, and self-regulatory mechanisms is a delicate task. Canada and the US have both established oversight bodies for the auditors of public companies in an effort to enhance the quality of audits for those companies: the Canadian Public Accountability Board (CPAB) and the Public Company Accounting Oversight Board (PCAOB) in the United States. The two countries deviate, however, in their allocation of regulatory responsibility in relation to the accounting profession, with Canada continuing to rely on a largely self-regulatory model and the US relying almost exclusively on government regulation. This study compares these two approaches to the regulation of public auditors in Canada and the US and offers concrete suggestions for improvement. In particular, this study analyzes and compares the CPAB and the PCAOB, looking at the structure, operation, and governance of the two boards, and analyzing their effectiveness and making recommendations for how they might be improved.

Comments

A Fraser Institute Digital Publication.

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